Many business owners mistakenly believe that they don’t need coverage for errors and omissions (E&O) or that this coverage is provided by a general liability policy. The fact is, general liability insurance will not cover you for errors and omissions, and anyone in the business of providing a service for their clients can benefit from the protection of an E&O policy.

What is Errors and Omissions Coverage?

An errors and omissions policy protects you and your business in the event of a mistake occurring due to an error or omission (or the perception of such by the client) on your part or by your employees. This coverage can apply if your client holds you responsible for a service you provided or failed to provide, or if the service did not have the expected or promised results. Errors and omissions coverage is also known as malpractice insurance for professionals such as doctors, dentists, chiropractors, etc. and professional liability insurance for professionals such as lawyers, accountants, architects, engineers, etc.

Even with the best workforce and the best risk management practices, mistakes can still happen.

Because E&O risk exposure varies significantly from company to company and among different industries, E&O policies usually vary by client to fit their unique needs. There is no standard policy wording for E&O coverage, so it is very important that you thoroughly review your policy with your agent to ensure the coverage fits your exposures.

What Do E&O Policies Cover?

Errors and omissions insurance provides coverage for you and your business if a claim arises alleging failure to provide professional services in accordance with applicable laws and regulations. This coverage applies if your client claims you failed to deliver a service that met the standard of care for your profession. Losses involving automobile liability, general liability, fidelity, workers compensation, etc. are not covered by an E&O policy. Coverage for bodily injury or property damage is not typically included unless the injury or damage result from providing or failing to provide professional services (this is common on policies for medical professionals).

Errors and omissions policies usually cover the cost of damages incurred by your client (indemnity) as well as claim expenses. Even if the charges against you are found groundless, it can be very time consuming and cost thousands of dollars to defend a lawsuit in court. These costs can bankrupt an individual or small company and leave a lasting effect on the bottom line of larger companies. An E&O policy can cover judgments, settlements, and defense costs should a claim arise.

An E&O policy provides protection for you (the professional), your partners and employees, and the corporation/partnership. Directors and officers of the company are not covered by an E&O policy (contact your insurance agent to learn more about coverage specific for directors and officers).

Other exclusions to be aware of in an E&O policy include, but are not limited to, the following: criminal, fraudulent, deliberately wrongful, or malicious acts; guarantees or warrantees; and claims stemming from previously known but undisclosed errors.

Who Needs E&O Coverage?

Generally, the professionals often thought of in regards to E&O coverage include those in the medical profession as well as lawyers, accountants, architects, engineers, insurance agents and brokers, appraisers, and mortgage brokers. However, other types of professionals need this coverage as well, including advertising agencies, public relations firms, internet service providers, property management companies, staffing agencies, commercial printers, construction contractors, home inspection services, and more.

It is best if you consult with your insurance agent to determine if you have E&O risk. Here is a general rule of thumb: do you provide a service to your clients for a fee? If so, you have E&O exposure. Other characteristics of those who have E&O exposure include those who possess special knowledge and skills necessary to perform their duties, hold industry-specific licenses and/or certifications, and participate in continuing education to earn and maintain licenses and/or certifications.

Even with the best workforce and the best risk management practices, mistakes can still happen. Failure to secure an E&O policy can put a serious financial risk on you and your business. Discuss your needs with your Leavitt Group insurance adviser to determine the right coverage for your situation.

References:

online.wsj.com

www.InsuranceJournal.com
www.news.leavitt.com